Of the myriad of divisive issues on which Donald Trump has poured gasoline, immigration into the US seems to have generated the tallest flames.
Those interested in moving permanently to the US need to be asked one very important question: Are you sure living here is in your financial best interest?
Actually, current US citizens need to be asked the same question. When it comes to tax rates, the US is no safe haven. It’s 22.7 percent tax rates makes it the eighth (!) highest in the world. Mexico’s tax rate is 9.5 percent. Few countries can compete with the US when it comes to the notion that the last person entitled to your hard earned money is you.
The IRS has it down to a science.
A Different F-Word
Immigrants who have just received their US citizenship need to know that all of the money they’ve earned in their homeland is now taxable by the IRS. Sounds a bit greedy, right? Well, the US is a bit different than most other countries when it comes to taxing procedures. If you’re a US citizen and have authority over one or more international bank accounts, the IRS is entitled to chunk of it.
For those who’ve live here all their lives and think they can escape the IRS’s grasp by simply living abroad, well think again. All the money earned by US citizens – regardless of wherever in the world that money is earned – is taxed by the IRS.
Think about that for a second.
If you’re a US citizen living in Italy, for example, and earn money selling products to Italian customers, the IRS is going to tax you on it.
Not many people are aware of this aspect of US law, and are shocked when the IRS comes calling. That’s why it’s important to familiarize yourself with a new “F” word: the FBAR (Foreign Bank Account Report).
The FBAR is the form needed to stay in compliance with the IRS.
Penalties for not knowing about this jewel of a tax rule can include up to $250,000 in fines and five years in prison.
Time to Renounce Your US Citizenship?
Why would anyone in their right mind willingly leave the US? The most common reasons are tax laws.
People are wising up and checking out.
During the first three months of 2015, 1,335 US citizens renounced their citizenship – the highest number ever recorded for one quarter.
Not wanting to miss out on another way to get a slice of your money, the US Department of State has seen the increase of US citizens wanting to revoke their citizenship as a new source of revenue: they’ve upped the fee for renunciation from $450 to $2,350.
Because newer tax laws like the Foreign Account Tax Compliance Act (FATCA) contribute to the notion of double taxation, expatriates-to-be may see leaving the US as an end to being subject to the complicated US tax reporting responsibilities.
Before taking the plunge to revoke your citizenship, remember that the decision is irrevocable.
There's no second chance when you make the decision to move. You’ll also no longer:
- Be able to vote in US elections;
- Have access to government protection and assistance while traveling overseas;
- Be able for your children to have automatic citizenship if they're born outside the US;
- Have access to federal jobs; or
- Enjoy unrestricted travel into and out of the US.
